657 

W'Te- 

7 , ' i s 


Production 

Costs 


ELEMENTS  ENTERING  INTO  COST  OF  PRODUCTION. 

Vt  ^ R 

A Direct  Material  (including  Incoming  Transportation) 

fl  Time  Work 

3 Freniur.  Wages 
E Direct  Labor  3 Piece  Work 

4 Specific  Bonus  to  Productive  Workers 

V 


A 

E 

C 

/ D 

^Salaries  E 
and  F 

Supplies 

G 


Superintendents  and  Foremen 
Draftsmen  &Drftg  Material 
Time  & Cost  Dept & Supplies 
Stores  Dept  & Supplies 
Shipping  Dept  & Supplies 
Bookkeepers,  Clerks;,  Steno- 
graphers & Shop  Auditors 

Salaries 

Shop  Pure-.,  x.  ^ - Supplies  & 

Stationery- 

Postage 


C 


2 Non-Pro- 
ducing 
Labor 


A Tool  Making  & Repairing 
E Tool  Boys  (Messengers) 

C Pattern  Makers,  part  only 
D Inspectors 
E Carpenters 

F Painters,  where  cannot  be 
directly  applied 
G Engineers  & Firemen 
H Porters 
I Truckers 
J Elevator  Men 
K Packers 
L Special  Bonus 
M Overtime  Allowance 


Manuf act uring3  Taxes 
Expense  4 Insurance 

5 Water,  Light  & Fuel 

6 Pattern  Material 

7 Racking  Material 

8 Experimental  (not  including  Develop- 

ment ' Work 

9 Factory  Supplies  ■„ including  Incoming 

trars  portation) 

10  Miscellaneous  Manufacturing  Expense 


n Royal - 
'*  ies 


A Buildings 

E Power,  Heat,  vt  ? & Light 
C Power  Tools 
11  Mainten-  D Small  Tools 

ance  E Shop  Furniture  & Fixtures 
F Patterns 

S All  Other  Equipment 


i n 0,0  wuxmeu.  nxea  Rat 

It  SellareV;orferial  & ’tortoanshiP 


,v 


Digitized  by  the. Internet  Archive 
in  2017  with  funding  from 

University  of  Illinois  Urbana-Champaign  Alternates 


https://archive.org/details/costaccountingsyOOhydr 


{ 


1 Salaries,  ex;- 
cepting  where 
directly  con- 
nected. wit'  Sncp 
Organization. 


A Executive  Officers 
F Salesmen 

C Bookkeepers  and  Clerks 
D Stenographers 
E Auditors 


Salaries 

2 Advertising  Supplies  and  static nery 

Advertising  of  all  Kinds 
Postage 


Rent,  Insurance  and  Ta.  . - 
Light  and  Heat 

3 Office  Supplies  and  stationery 

Depreciation  and  Maintenance,  Offic 
Buildings  and  Equipment 


Commercial 

Expense 


a-  General  Pur-  Salaries 

chasing  De-  Supplies  and  Stationery 

partment  Postage 

5 Traveling  Expenses 

6 Entertainment 

7 Telegraph  and.  Telephone 

8 Postage 

9 Commission 

10  Dr ay age  (Outgoing) 

11  Freight  (Outgoing) 

12  Legal  Expense 

13  Drawings  for  Estimates 

14  Fatent  Cos-s 

15  Miscellaneous  General  Expense 

16  Bad  Debts 


NOTES 


A - Direct  Material  and  Direct  Labor  to  be  charged  to  Product. 


x)  - Shop  overhead  or  Burden  to  be  included  in  Manufacturing  or  Shop 
Cost  on  a basis  of  per  oe.it.  of  productive  lal^r,  productive 
hour,  machine  hour  rate,  or  any  other  equitable  basis  that  may 
be  the  practice  of  the  member  Company. 

(It  is  recommended  that  Departmental  Distribution  of  Jurden  be 
followed  as  far  as  praot icable) . 

C ~ Commercial  Expense  to  be  distributed  on  a basis  of  per  cent, 
of  total  shop  cost. 


D 


Interest  and  Exchange 
Development  Work 
Federal  Taxes 
Special  Amortization 
Special  Reserves 
Strike  Defense 


These  items  not  to  be  included  in 
the  cost  of  a pump. 

They  are  to  be  treated  as  a direct 
charge  against  profits. 


X 


t 


l 


/I 


» 


The  Committee 
depreciation: 


recommends  the  following  minimum  rates  of 

? SR  CENT . 


4 


Buildings,  wood 

brick.,  concrete 3 

Mechanical  Equipment 6-2/3 

Plant  Power  and  Large  Equipment 10 

Machinery kO 

Small  Tools,  Dies,  Jigs  and  Fixtures 20 

Patterns 25 

Drawings 30 

Furniture  and  Fixtures 10 

Typewriters  and  Adding  Machines 20 

Horses,  Wagons  and  Harness 20 

Automobiles.. 20 


Additional  percentages  should  be  used  in  the  case  of  a shop 
operating  overtime  as  a regular  thing. 

It  is  recommended  that  the  additional  percentages  as  outlined 
in  schedule  of  depreciation  rates  to  cover  the  additional  hours, 
should  be  as  follows: 


1 hrs. 

2 " 

3 « 

4 it 

5 « 

6 n 

7 " 

8 " 

S " 

10  " 

11  " 

12  " 

13  " 

14  " 

15  or  more 


add  5$ 
" 10 
" 15 
" 20 
« 25 
" 30 
" 35 
» 40 
» 45 
" 50 
» 57^ 
«»  67j 
*'  80 
'*  95 


of  the  normal  rate 


In  carrying  out  this  system  cf  cost  accounting,  each  and  every 
member  should  keep  control  accounts  in  the  general  ledger,  in- 
corporating the  manttfactuins  and  cost  accounting  as  a part  of  the 
general  accounting  scheme  of  -she  Company. 

The  main  controlling  accounts  used  to  accomplish  this  purpose 

are: 


3 


i 


( 


1 


4 


Stores  (Raw  Material  or  Supplies) 

Work  in  Process 
Finished  Material 
Cost  of  Sales 

This  will  necessitate  a stores  system  with  material  requi- 
sitions and  stock  records;  a system  of  production  orders  to  which 
will  be  charged  all  productive  material  and  labor;  and  a system 
of  standing  or  special  asset  and  expense  orders  to  which  will  be 
charged  all  other  material  and  labor,  so  that  all  material  and 
labor  will  be  accounted  for. 

All  labor  should  be  entered  on  time  tickets,  the  total  value 
of  these  to  be  verified  with  the  pay  roll. 

In  figuring  cost  of  castings,  instead  of  using  a uniform 
price  per  pound,  either  an  individual  cost  should  be  compiled, 
using  the  same  system  as  in  the  machine  shop,  or  at  least  a limited 
classification  cost  based  on  trial  individual  casting  costs. 

The  per  pound  cost  of  castings  will  vary  la:  ,el.  :'-a  the 
character  of  the  casting.  For  example,  take  the  case  v ? a runner 
as  compaied  with  a base  plats.  In  the  one  case  you  may  uave  an 
intricate  and  expensive  core,  while  in  the  other  there  is  no  core 
work  at  all. 

The  Chart  outline  is  placed  first  in  order  in  the  report  as 
it  represents  the  frame  work  of  the  system  and  can  be,  and  w-ii'1  be 
more  readily  referred  to  than  if  absorbed  in  the  body  of  the 
report. 


It  may  be  of  advantage  to  comment  on  the  various  headings 
so  as  to  indicate  in  the  report  of  the  Committee  the  elements  in 
eluded  urfder  the  several  headings. 


PRODUCT  ION  CCS  TS 


The  general  divisions  of  Production  Costs  are:- 
Caption  - A.  DIRECT  MATERIAL.  (Including  Incoming  Transportation) 

The  proper  distribution  of  material  charges  over  product  can 
be  brought  about  only  through  a store's  room  system,  by  means  of 
which  a "Store's  or  Material  Order"  is  used  to  withdraw  such 
material,  from  which  order  the  material  sc  withdrawn  is  charged  to 
the  individual  shop  order  numB  r,  which  number  appears  on  the  order 
when  presented  to  the  Stores-keeper . The  Committee  recommends  that 
all  material  be  charged  to  the  respective  shop  orders  at  actual 
cost.  In  coming  Transportation  should  be  added  co  the  cost  of 
material  received  and  included  in  the  price  at  wnich  it  is  with- 
drawn. 


4 


\ 


(+ 


* 


DIRECT  LABOR. 


4 * 

Caption  - B. 

B - 1 . Time  Work 
B - 2.  Premium  Wages 
B - 3.  Piece  Work 

B - 4.  Specific  Bonus  to  Production  Workers 

These  are  direct  charges  to  product,  and  the  proper  distribution 
of  productive  labor  charges  can  be  brought  about  only  through  a 
time  s^tem  witch  charges  time  consumed  to  individual  shop  order 
numbers.  The  medium  of  payment  is  optional,  whether  it  be  time 
work,  premium  wages,  production  bonus,  or  piece  work.  We  define 
Productive  Labor  to  be  all  ^abor  which  can  be  applied  directly  to 
specific  shop  orders-all  other  labor  we  would  designate  as  Non- 
productive. 

Caption  - C.  MANUFACTURING  EXPENSE. 

Under  this  general  caption  we  have  made  fourteen  subdivisions, 
and  these  in  the  opinion  of  the  Committee,  w-i.11  account  for  all 
overhead  shop  expenses  likely  to  be  met  with. 

Cp.pt ion  - C - 1.  SALARIES  A,;P  SUPPLIES. 

A,  Superintendents  and  Foremen, 

Should  a Superintendent  or  Foreman  put  in  } art  of  his  time 
as  a producer,  such  time  should  be  charged  directly  to  the  parti- 
cular shop  order.  Where  their  work  is  devoted  to  supervision, 
the  salaries  of  these  men  will  be  treated  as  a charge  to  shop  over- 
head. 


B.  Draftsmen  and  Drafting  Material. 

All  Drawing  Room  wages  and  material,  except  on  new  designs, 
should  be  charged  as  an  expense.  Time  on  new  designs  should  be 
charged  to  Drawings  Account,  representing  an  asset.  It  w-ill  hardly 
be  necessary  to  do  this  with  Drawing  Material. 

C.  Time  and  Cost  Department. 

The  whole  expense  of  this  Department  as  it  relates  to  manu- 
facturing is  properly  a manufacturing  expense,  since  the  records 
of  this  department  will  enable  us  to  compare  the  relative  costs  of 
various  manufacturing  methods  in  succeeding  shop  orders. 

D.  Stores  Department. 

As  this  department  enables  .us  to  keep  a close  check  on  our 
stores  and  an  accurate  account  of  all  material  going  into  various 
shop  orders,  it  should  be  handled  in  the  same  manner  as  the  Time 
and  Cost  Department. 


5 


V 


' 


% 


i 


t 


\ 


' 


E.  Shipping  Department, 

Wages  paid  in  this  Department  and  material  used  in  ordinary 
packing  are  usually  treated  as  a part  o I factory  overhead. 

F.  Salaries  ot  Bookkeepers,  Clerks,  Stenogra.  -'■id  Shop 

Auditors,  where  noi  covered  in  a particular  department...  expense 
will  he  treated  as  shop  overhead  under  this  Caption. 

G.  Shop  Purchasing  Department. 

The  Expenses  of  this  department  as  distinct  from  the  General 
Purchasing  Department  which  functions  for  several  factories,  will 
constitute  a part  of  the  shop  overhead. 

Caption  - C - 2.  NON-PRODUCING  LABOR. 

A.  Tool  making  and  repairing. 

A conservative  plan  is  to  charge  all  wages  and  material  in  this 
connection  to  expense  where  the-  Tools  and  Jigs  manufactured  cost 
$50* 00  or  under.  If  the  cost  is  in  excess  of  this  amount  a charge 
should  be  made  to  ’’Special  Tools”,  an  asset  account. 

E.  Tool  Boys  (Messengers) 

The  wages  of  these  boys  are  a proper  charge  to  expense. 

C.  Pattern  Makers. 

Where  patterns  are  made  for  special  rachi  es  their  cost  should 
be  charged  to  the  individual  shop  order.  Where  patterns  are  made 
for  standard  lines,  the  cost  should  be  charged  to  "Patterns”,  an 
asset  account.  All  costs  in  connection  with  the  maintenance,  re- 
pairs and  renewal  of  patterns  should  be  treated  a s-r  expense. 

D*  Inspectors 

E.  Carpenters 
C F.  Painters 

The  wages  of  men  in  the  above  classes  are  chargeable  to  shop 
overhead  unless  such  wages  can  be  applied  to  specific  shop  grders. 

G.  Engineers  and  Firemen. 

The  wages  of  these  men  will  be  chargeable  to  expense,  although 
in  the  larger  Companies  it  is  recommended  that  the  wages  of  these 
men  and  all  other  expense  in  connection  with  the  operation  of  a 
Power  Plant  be  accumulated  under  "Pew  er  Department  Expense”,  and 
that  the  expense  so  accumulated  be  prorated  agaiist  various  operat- 
ing departments  on  the  basis  of  power  consumed  measured  by  meters 
or  Engineer's  estimates. 


8 


T 


.J 


t • 


f 


a 


> 


H.  Porters 

I.  True  lie  rs 

J.  Elevator  Men 

The  wages  of  tbese  men  are  a matter  of  general  shop  expsense 
since  they  cannot  be  dir.uly  applied. 

X#  Packers. 

The  wages  of  these  men  • ill  fall  naturally  under  the  same 
classification  as  shipping  department  wages. 

L.  Special  Conus  as  distinguished  from  Specif  ic  I on  '•->  is  to 
be  treated  as  an  expense  since  it  cannot  be  directly  applied  to 
specific  orders. 

M.  Overtime  Allowance. 

This  is  in  the  nature  of  special  compensation  and  is  to  be 
treated  as  part  of  the  general  overhead  since  to  add  it  to  direct 
labor  cost  would  destroy  the  value  of  comparison  of  costs  on 
succeeding  shop  orders. 

Caption  - C - 3.  TAXES. 

This  will  cover  taxes  of  every  description  in  connection  with 
the  operation  of  the  factory,  such  as  real  estate  and  personal 
property  taxes,  but  not  taxes  on  storage  warehouses  or  offices, 
which  should  be  included  in  commercial  costs. 

Caption  C~£.  INSURANCE. 

The  same  remarks  apply  as  to  Taxes. 

Caption  C-5.  WATER,  LICET  AND  POWER. 

The  cost  of  these  items  will  be  treated  as  general  expense 
unless  partially  collected  under  "Power  Expense"  as  indicated 
under  "Engineers  and  Firemen ",  A portion  of  Taxes  and  Insurance 
will  also  be  applicable  to  "Rower  Expense". 

Caption  - C-3.  PATTERN  MATERIAL. 

The  cost  of  pattern  material  should  be  treated  in  the  same 
manner  as  wages  under  the  Caption  "Pattern  Makers ",  This  naterial 
should  be  originally  charged  to  Stores  Account  and  withdrawn  on 
requisition. 

Caption  -C-7.  PACKING  MATERIAL. 

The  cost  of  this  material  should  follow  the  same  course  as 
indicated  for  wages  under  the  Caption  "Packers".  This  material 
should  also  be  originally  charged  to  Stores  account  and  withdrawn 
on  requisition. 


7 


( 


«»  T 


i 


It  is  recommended  that  all  expenditures  of  money  in  connection 
with  exper  it  mental  work  V.§  charged  to  expense  so  far  as  it  covers 
ordinary  experimental  work  which  is  being  co  t.M -jaily  done  by  all 
manufacturing  companies.  Where  it  takes  the  oh  rm  of  the  develop- 
ment of  new  lines  of  product  for  the  purpose  of  creating  a new 
field  of  action,  or  of  a rai:cal  departure  frnm  existing  models 

same  line  already  he manufactured  bv  t.’  e Gompuny,  it  „ 
represents  an  unusual  add  ahnSrmal  expenditure  w. : ch  is  ayitatter  of 

general  policy  and  not  chargeable  to  shop  operations. 


Caption  - C -S  FACTORY  SUPPLIES  (including  Incoming  Transportation) 

All  supplies,  with  incoming  transportation  added,  should  be 
charged  to  stores  and  from  there  withdrawn  by  requisition  and 
charged  to  general  overhead.  This  will  consist  of  all  such 
supplies  as  are  used  for  operating  or  making  repairs  to  the  plant 
or  to  the  machinery  in  the  plant  and  will  include  belting,  brooms, 
brushes,  carbon,  electrical  supplies,  oil,  sandpaper,  waste, 
and  other  similar  articles. 


Caption  - C - 10.  MISCELLANEOUS  MANUFACTURING  EXPENSE. 

This  is  intended  to  cover  Telephone,  Telegraph,  arid  other 
expenses  where  service  is  received  not  taken  care  of  under  other 
headings • 

Caption  - C -11 , MAINTENANCE. 

This  with  its  sub-divisions  is  intended  to  cover  all  repairs 
or  other  items  of  expense  necessary  for  the  maintenance  of  any 
property  items  in  such  conditions  that  the  only  loss  on  them  from 
time  to  time  would  be  their  normal  depreciation.  It  is  recommended 
that  a maintenance  account  representing  such  repairs  and  renewal 
be  carried  for  each  asset  account.  This  has  already  been  touched 
upon  as  regards  drawings,  tools  and  iigs  and  patterns. 

Caption  - C - 12.  DPRECIATION  AT  NORMAL  FIXED  "'*rrES, 


Owing  to  the  wide  variation  in  rates  of  depreciatd'. n 'ecommend- 
ed  by  various  authorities  the  Committee  have  incorporated  rates  of 
their  own  chos-ing  which  they  feel  can  be  safely  used  as  a minimum 
•in  normal  depreciation.  They  have  also  set  up  increases  in  rates 
to  be  charged  out  as  a special  expense  where  the  plants  are  regular- 
ly run  overtime.  These  rates  of  depreciation  should  be  figured  on 
the  original  value  of  the  asset  account  as  it  stands  on  the  b ;oks 
on  the  first  day  of  the  year.  This  value  multiplied  by  the  rate 
of  depreciation  will  be  the  normal  depreciation  for  the  current 
year  and  should  be  divided  by  52,  giving  the  weekly  amount  to  be 
absorbed  into  The  depreciation  thus  set  up  should  be  credited 

to  reserve  accounts  bearing  the  names  of  the  respective  assets. 
Insurance  and  taxes  should  also  be  treated  in  this  way  by  charging 
weekly  to  costs  the  'estimated  prorata  weekly  proportion  of  the 
anticipated  insurance  and  tax  payments  for  the  year.  The  credits 
thus  set  up  on  "Estimated  Insurance  and  Taxes"  are  to  be  offset  b^ 
charges  for  actual  payments  made  and  the  account  adjusted  at  the 
end  of  the  year. 


8 


4 


> 


1 


Caption  - C -13,  DEFECTIVE  MATERIAL  AND  WORKMANSHIP. 

Into  this  account  should  be  incorporated  Tosses  due  to  defective 
material  and  labor,  also  any  expense  in  ci  den  Taj.  thereto  such  as 
transportation  charges  paid  by  the  factory  on  the  receipt  of  de- 
fective material  returned. 

Caption  - C-14.  WELFARE  WORK. 

All  expenditures  for  First  Aid,  Hospital,  Restaurant,  Clubs, 

Safety  Appliances  and  other  of  like  nature  should  be  set  up  in  this 
account. 

Caption  - D.  ROYALTY. 

To  this  account  will  be  charged  any  and  all  Ro3a  lties  paid  for 
a product  and  sold  by  virtue  of  such  payment.  This  is  set  up  as 

a separate  caption  coming  between  manufacturing  expense  and  comm- 
ercial expense,  since  while  they  constitute  an  additional  cost  to. 
the  article  they  have  nothing  to  dow  ith  the  manufacturing  operations 
either  as  labor,  material  or  expense.  In  other  words.  Royalties 
are  never  paid  for  the  privilege  of  manufacturing  something  but 
for  the  privilege  of  selling  something  and  while  they  must,  be 
taken  into  account  in  costs,  such  payments  are  in  a class  by  them- 
selves. 


COMMERCIAL  EXPENSE. 

Caption  - 1.  Salaries  (Except  where  directly  connected  with 

shop  organization) 

Under  this  Caption  are  included  the  salar:  es  paid  outside  of^ 
the  shop  organization,  except  those  having  to  do  with  the  Advertis- 
ing and  General  Purchasing  Departments,  which  should  be  preferably 
charged  as  a part  of  the  expense  of  each  of  these  departments. 

Caption  - 2,  Advertising. 

Into  this  account  should  be  incorporated  all  expense  .n  con- 
nection with  Advertising,  including  cost  of  models.  Show  Room, 
Exhibitions  and  an}?-  other  form  of  publicity. 

Caption  - 3.  Office. 

It  is  recommended  that  an  account  be  kept  under  the  name  of 
"Head  Office  Expense",  in  which  should  be  incorporated  all  items 
having  to  do  with  the  maintenance  and  operation  of  such  office 
and  that  a similar  account  be  kept  for  each  branch  office. 

Caption  - 4.  General  Purchasing  Department. 

To  this  account  should  be  charged  all  salaries  and  expenses 
having  to  do  with  the  operation  of  the  General  Purchasing  De- 
partment as  distinct  from  the  Shop  Purchasing  Department. 


9 


<6 


7/  ' 


T 


* 


Caption 

- 5. 

Traveling  Expense 

(T 

6. 

Entertainment 

n 

7. 

Telegraph  & Telephone 

n 

8. 

Postage 

IT 

S. 

Commission 

fT 

10. 

Dray age  (outgoing) 

n 

11. 

Freight  (outgoing) 

n 

13. 

Legal  Expense 

It  is  optional  whether  these  expenses  are  recorded  under  accounts 
with  the  above  designations  or  whether  they  be  included  under 
20ffice  Expense"  as  part  of  the  legitimate  expense  for  maintaining 
such  offices. 


Caption  - 13.  Drawings  for  Estimates. 

This  expense  should  incorporate  wages  and  material  for  all 
drawings  made  for  Company  estimates.  This  a]cr  may  properly  be 
charged  to  "Office  Expense"  as  u sually  this  work  will  be  done  for 
some  particular  office. 

Caption  14.  Patent  Costs. 


A safe  plan  is  to  charge  all  expenditures  direct  to  ^ ' account 
although  it  my  be  considered  advisable  in  the  case  of  large  ex- 
penditures, the  returns  from  which  will  be  deferred,  to  capitalize 
such  expenditures  writing  off  to  a reserve  an  annual  prorated  amount. 

Caption  - 15,  Miscellaneous  General  Expense. 

Any  items  chargeable  to  Commercial  Expense  not  already  provided 
for  may  be  covered  under  this  Caption. 

Caption  16..  Bad  Debts. 


This  is  an  item  of  loss  which  should  be  taken  care  of  in 
Commercial  Expense  because  of  its  correspondence  to  what  really 
amounts  to  a depreciation  of  "Accounts  Receivable  ",  an  asset  account 
This  can  be  readily  done  by  setting  up  a reserve  to  which  Bad 
Debts  will  be  charged  only  when  it  becomes  evident  that  they  are 
uncollectable . 


GEITSRATj  IIOTES. 

£■.  At.  The  application  of  direct  material  and  direct  labor  as 
or  A >.< charges  to  Production  have  been  fully  gone  into  and  are 
pretty  generally  understood. 


% 


10 


1 


« ^ * 


; > ^ 


I i i 


E.  The  Commi «t,ee  have  left  it  optional  v*  eh  Company 

to  distribute  shop  overhead  on  such  basis  as  ay  be  their  present 
practice  as  they  feel  that-  considerable  latitude  must  be  allowed 
•in  this  direction. 

C#  The  Committee  is  of  t *e  opinion  that  the  .epical  'ethod  of 
figuring  costs  is  the  building  up  process.  Foundry  to  be 

complete  in  itself;  machine  Shop  cost  to  be  complete  j.tself, 

incorporating  Foundry  cost  as  material;  and  Commercial  xxpense 
to  be  added  to  the  costs  already  built  up  on  the  basis  outlined 
in  the  chart. 

D,  The  items  set  up  under  this  general  note  are  felt  to  be 
of  such  a rature  that  they  must  be  eliminated  from  ; con- 

sideration in  comparative  cost  finding  and  be  treated  as  a direct 
charge  agairs  tprofits. 

With  regard  to  the  first  item,  that  of  Interest  and  Exchange, 
there  is  a wide  difference  of  opinion.  While  it  might  be  per— 
m-issable  to  charge  ordinary  interest  as  a Commercial  Expense,  the 
inclusion  of  interest  on  bonded  indebtedness  or  on  capital  invest^ 
ment  should  not  be  so  treated.  Some  authorities  take  the  ground 
that  where  the  manufacturer  rents  a plant  he  will  charge  up  the 
rental  as  a part  of  his  cost  and.  that  as  an  offset  to  this  the  manu- 
facturer who  owns  his  plant  should  cnarge  into  his  cost  interest  on 
his  investment.  Supposing  that  he  did  this,  on  what  part  of  his 
•■investment  would  he  charge  interest  and  at  what  rate?  When  he 
charges  depreciation  he  sets  up  a reserve  which  is  not  to  be  dis- 
tributed as  profits.  If  he  charges  up  the  interest  on  his  in  estmen 
he  creates  a reserve  which  is  distributable  as  profits.  In  other 
words,  this  is  part  of  his  profits.  The  mar eb  usurer  who  rents 
his  plant  as  a rule  would  rent  only  real  esl:  e and  buildings. 

The  payment  of  rental  relieves  him  from  repairs,  maintenance,  in- 
surance, and  taxes;  also  from  a depreciation  charge  ,io  buildings. 

The  manufacturer  who  owns  his  buildings  must  mai  rtain  them,  keep  the 
in  repair,  pay  insurance  and  taxes  and  charge  up  ‘ lion. 

The  difference  between  the  rent  paid  by  one  and  the  :,ments 
and  charges  of  the  other  is  the  only  amount  whiun  could  be  figured 
to  a disadvantage  to  the  manufacturer  who  rents.  On  the  other  hand 
the  manufacturer  who  rents  has  a certain  amount  of  working  capital 
which  he  otherwise  would  have  invested  in  real  estate  and  buildings 
and  on  which  his  return  tnrough  the  business  would  presumably 
more  than  compensate  for  this  difference.  The  same  argument  could 
be  applied  as  regards  working  capital  secured  by  the  issuance  of 
bonds.  The  Federal  Trade  Commission  have  ruled  that  such  interest 
•is  not  an  expense  but  is  chargeable  to  profit  and  loss. 

Committee  are  not  submitting  forms  as  they  believe 
that  standard  stock  forms  can  be  readily  secured  for  factory  use 
through  which  the  advocated  cost  system  will  function,  but  "chat 
even^  the  general  adoption  of  the  theory  and  practice 
oi  the  system  set  forth  standard  forms  can  be  later  decided  upon. 


<0  < 


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The  foregoing  c 
to  the  actual  find-in,, 
comparisons  are  made 
distributors  the  diffex 
company's  price  to  the  co 
or  distributors  should  be 
pense  under  the  heading  of 

For  example,  if  a company 
and  kind  on  which  costs  were  to 
the  consumer  was  $100*00,  this  Wo 
price  to  the  consumer  cf  $500,000. 


■•ions  that  relate 
ent  that  any  cost 
.es  to  agents  and 
a be  a member 
.. -,e  price  to  agents 
g of  its  selling  ex- 

iumps  of  a certain  size 
'ed,  anu  ns  pH  ze  to 
•resent  a tot  Gv  J.  ^ 3 lling 


If  his  actual  sales  during  the  ,erm  are 


1000 

Pumps 

@ 

$100. 

ear 

$100,000. 

10CJ 

n 

@ 

90 

u 

90,000. 

1000 

n 

@ 

80 

a 

80,000. 

1000 

a 

@ 

70 

n 

70,000. 

1000 

n 

m 

0 

60 

n 

60,000. 

The  actual  total  net  return  would  have  been  $400*000.  which 
would  be  $100,000.  less  than  the  total  consumer  price  foi 
the  5000  pumps.  This  sum  should  be  added  to  the  total  selling 
expense  and  -in  this  case,  for  purpose  of  the  comparison,  would 
add  $20.00  to  the  unit  cost  of  the  pump. 

This  would  be  for  cost  comparison  purposes  only,  and  would 
net  change  any  member  company's  actual  accounting  practice  in 
this  respect. 


W.  R,  DCREMFS 

Chairman 

C.  H.  ROHRBACH 

Secretary 


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GROUP  MEETING  DISCUSSIONS 


\7e  present  herewith  portions  of  the  discussions  which  took 
place  at  the  first  series  of  meetings.  For  the  benefit  of  members 
who  did  not  attend,  any  of  the  meetings  and  to  refresh  the  memories 
of  those  who  were  present,  some  of  the  more  important  questions 
brought  up  and  the  answers  given  are  offered  for  what  they  are 
worth,  A study  of  them  no  doubt  will  make  it  a bit  easier  to 
grasp  the  progress  of  the  cost  work  to  date. 


MEMBER : Yi/hile  we  account  for  material  going  into  the  garment 

we  do  not  believe  it  wise  to  credit  waste  because  it 
is  difficult  to  dispose  of, 

C0I1MENT : In  order  to  illustrate  the  effect  of  waste  credit  on 

the  final  cost,  a member  made  up  the  following  esti- 
mate and  emphasized  that  while  the  effect  was  small  at 
the  present  market  price  of  waste,  there  are  times 
when  it  amounts  to  very  much  more. 


i 


■ MATERIAL  ESTIMATE  FOR  TY/ENTY- POUND  GARMENT 

Yarn  in  Skeins 


Cost  of  Dyed  Yarn $1*50 

Freight  — ,02 

Handling — .01  1,53 

Coning 

Labor  ,03 

Overhead ,02 

Y/aste  2% — ,05 * 08 

TOTAL 1,61 

Credits  for  baste 

Coning  *02  pounds  @ 0.10  — - . 002 

Cost  delivered  to  knitters  1,608 


. fe. 

DEPITS 

20  pounds  @ 1,608  32,16 

3/&  Knitting  Y/aste  ,96  P>  33,12 

CREDITS 

Cutting  Y/aste,  li  pounds®  0.10  — .15 


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